TOL @ August 02, 2020
Choosing Momemtum Over Value?
On July 5th, I mentioned that I would be trying to move my portfolio, from 99% "Value" based, to about 50% "Momentum".
After about a month, my portfolio has now decreased from 99% "Value" to about 67%.
That means that I have added quite a bit of "Momentum" stocks into my portfolio over the past month.
That also means that I have been taking more risk and avoiding the traditional measures to buy stocks eg. Revenue, Earnings, PEG, Yield, Cash Flows etc.
Therefore, it may be timely, to reflect on my current strategy in view of the various headwinds that we are currently facing eg. Covid19 lockdowns, deteriorating economic conditions, unstable geopolitical situations etc.
In the past, one of the reasons for my buying of "Value" stocks, is to be able to sleep "better" at night. I dont have to worry about whether the company is going under or whether it's business model is not sound. And if the stock exchange is to close for a few weeks, I would know that my counters would probably be still around when it reopens.
In addition, I have also gone through a few crashes eg. Black Monday, Nikkei Plunge, Dot.com, 9/11, Asian Contagion, Sub-Prime Crisis etc and buying "Value" stocks feels safer.
I'm also greatly influenced by the rules of Sir John Templeton:-
1. "All too many investors focus on the market trend or economic outlook".
2. "Buy value not market trends or the economic outlook".
However, in the age of the internet and biotechs, the old rules may not be applicable anymore.
AMZN and some ot the other high flying tech companies, have not been profitable for years, Yet it's share price has been flying to the moon for years. It's Forward PE is now 100 and there are millions of "Robinhoods" who would buy it, without blinking an eye.
Closer to home, Supermax has gone up 10 times in the past few months. And when I tried to "speculate" on the glove makers recently, I was shaken out of my position when they suddenly dropped. I'm starting to understand what Peter Lynch meant that “in the stock market, the most important organ is the stomach. It's not the brain”.
In view of the above, it's timely to review and refine my trading tactics to the following:-
1. The investment "story" must be "huge". I need bigger fools to buy after me.
2. For "speculations", I must cut my losses after 2 to 3 days and never let it roll over the weekend. Mentally, it would be eating me if I do not cut my losses quickly.
3. For "swing trading" and "position trading", I should have mental stops at 7%. At 25% losses, I need a hard stop. I need to also have a time expiry of about 3 months on any losses.
4. For "winners", I should try to hold on to the winning position but have trailing-stops. In the past, I used to buy on dips and then take quick profits.
5. I must constantly remind myself of the "4 Horsemen of Catastrophic Losses" ie. Arrogance, Ignorance, Fear and Greed.
6. I should reduce my position size in view of my current experiments.
Going back to the markets, the following are my random thoughts:-
1. US:-
Cons: Tech beating expectations again; Covid19 Rolling Lockdowns; Protests; Hurricane Season; Desperate Trump before Election; Bogeyman China;
Pros: Economy contracted by about US$2.5t versus injection of US$10t; Low Interest Rates; Weaker USD; Helicopter Money; Robinhood Traders;
2. China:-
Cons: Trade War; Weak Exports; Rolling Lockdowns; Five Eyes; India;
Pros: Grinding Higher; Covid19 FIFO; Retail Investors; Stimulus Programs
3. HK:-
Cons: Water Torture Stock Markets; Covid 19 Rolling Lockdowns; Weak Retail, Non-Existent Tourism, Weak Commercial Properties;
Pros: Stabilty (Security Law); Low Interest Rates; Delisting of US Listed China Companies; HK Tech Index; IPOs; Stable HKD Currency;
Weekly Risk Management Progress Report:-
1. To Monitor NET Exposure To Equities (Long Less Shorts):- Safe (23% from 19% last week from 13% two weeks ago, of Liquid Assets)
Goal: 5% exposure to Equities before the next crash; Maximum 30%;
2. To Diversify From Asian Equities: Worse (98% from 96% from 94%):
Goal: To reduce the percentage of Asian Equities to around 70%
3. To Buy Inverse ETFs and Puts before the next crash:-
Current Position:-
a. TZA (Inverse Russell 3x)
b. SOXS (Inverse Semiconductor 3x)
Goal: To have a sizable short position going into the next crash / recession
4. To Increase "USD/HKD/Gold" - No Progress. (25% from 25% from 25%).
Goal: To be in the safe havens before next recession; (HKD may be repegged)
5. To Reduce Number Of Counters: Worse (25 from 24 from 16)
Goal: To focus on maximum 20 counters from 4 countries at any one time.
6. To Minimize Industry / Sector Risk / Country Risk
a. Heavy exposure to Asian Based Equities
b. Heavy exposure to Asian Based Currencies
Goal: To diversify across various Sectors, Countries and Currencies
7. To diversify from "Value" into "Momentum" stocks: Progress; 66% from 65% from 89% Value Stocks.
Goal: To increase exposure to 50%
Market Risk Indicators
1. Euphoria: 9 (Low: 1; High: 10) - FAANNG, ETFs; Margin Debts; SWFs; Central Banks; Fund Flows;
2. Credit Problems: 9 (Very Good: 1; Very Bad: 10) - Housing, Subprime Auto; Student Loans; Credit Cards; Junk Bonds; EM USD Loans;
3. Recession: 9 (Strong Economy: 1; Depression: 10) - GDP; Taxes; PMI; Housing; Auto; Retail; NAFTA; Trade War; 2019?;
4. Liquidity: 6 (Very Liquid: 1; Tight 10) - QE (Feds, ECB, BOJ, PBOC); Interest Rates; Rotation (Bonds); Asset Shrinkage 2018?; EM; Italy;
5. Inverted Yield: 6 (Low Inversion: 1; High Inversion: 10) - Rising Interest Rates; Slope; Inversion; US 10 Years < US 2 Years; Expecting 2019 to 2020
6. Valuation; 9 (Safe 1: Danger 10) PE S&P, Nadsaq; Revenue; USD; Tax Reform; Deregulation
7. Geopolitical Issues: 7 (Peaceful: 1; War: 10) - Iran; South China Sea; Europe; Russia; Saudi Arabia; Iran;
Total: 55 out of 70 (79%); (Safe: 60%; Danger: 85%)
Commodities: Risk-Off (Data from Commodities Live every Saturday)
1. WTI Oil - Lower. $40.44 from $41.34 last week from $40.59 two weeks ago;
Support: Resistance: US$29; US$45 (R1); US$77 (2018);
a. Demand is down about 20%?
b. Supply is up about 15%?
c. China is filling it's SPR
viewtopic.php?f=33&t=9249&p=231235#p231235
2. Gold - Higher. US$1971 from US$1900 from US$1812;
Support: $1240; $1050; Resistance: $1775; $1830;
a. They cant print gold
b. Gold will probably rally after the current physical selling
c. In a crisis (cash crunch), gold will also be sold
d. Is Silver a better bet due to the current high Gold/Silver ratio?
viewtopic.php?f=33&t=8845&p=231236#p231236
3. Copper - Lower; US$2.86 from US$2.89 from US$2.90;
viewtopic.php?f=33&t=5598&p=231237#p231237
Equities - Risk-On (Data as of Saturday every week)
1. US Equities - Higher; 3271 from 3216 last week from 3225 two weeks ago;
viewtopic.php?f=11&t=7643&start=200
a. Support: 2820; 2740; 1930 (2016); Resistance: 3385
b. Bought GDX (Gold Miners ETF)
2. HK Equities - Lower. 24595 from 24705 from 25089;
htttp:/investideas.net/forum/viewtopic.php?f=10&t=7470&start=120
a. Support: 22000; 21600; 19500; 16800
b. Resistance: 25400; 26800; 28000; 29000; 31600;
c. Bought Zhaojin (1818)
d. Bought ASM Pacific (0522)
e. Sold SMIC (0981)
f. Sold CICC (3908)
g. Sold Yeahka (9923)
h. Traded Fosun Pharma (2196)
3. Shanghai Equities - Higher; 3310 from 3197 from 3214;
viewtopic.php?f=10&t=7190&start=210
a. Support: 2450; Resistance 3300; 3600
b. No Trade
4. Spore Equities - Lower; 2530 from 2580 from 2618;
Resistance 3850
a. Added to Wilmar
5. Japan Equities - Lower. 21710 from 22752 from 22696;
viewtopic.php?f=10&t=7138&start=200
a. Forward PE 13
b. Support 15575 (2016); Resistance 25000
c. BOJ owns > Half government bonds and 75% of ETFs
d. Breakeven on BOJ's ETF at 19,500
e. With the stronger Yen, would the Nikkei be correcting?
f. No Trade
6. Malaysian Equities; Higher; 1604 from 1590 from 1596;
viewtopic.php?f=10&t=6292&start=30
a. Short-Selling ban extended to Dec 31, 2020
b. Added to MUI Properties
c. Traded Bursa
Currencies: Risk-On (Data from XE.com on Jul 31 @ 2.45 PM)
1. USD to JPY - JPY Stronger; 104.36 from 106.00 last week from 107.13 two weeks ago;
a. 52 week range is 76 to 126
b. Aging Population
c. High Debt Ratio
d. Umlimited QE
viewtopic.php?f=32&t=4205&start=180
2. SGD to MYR - SGD Stronger; 3.0960 from 3.0782 from 3.0682;
a. Would they devalue the SGD because of the coming Recession?
b. Converted some SGD to MYR
viewtopic.php?f=32&t=136&start=110
3. AUD to USD - AUD Stronger; 0.7225 from 0.7088 from 0.6990;
a. The range is 0.70 (2016) to 1.10 (2011)
b. Commodity Currency
c. How will China retaliate against Australia?
viewtopic.php?f=32&t=5256&start=130
4. AUD to SGD - AUD Stronger; 0.9895 from 0.9818 from 0.9726;
a. The range is 0.98 (2016) to 1.36 (2012)
5. AUD to MYR - AUD Stronger; 3.0638 from 3.0224 from 2.9843;
a. The range is 2.20 (2008) to 3.41 (2017)
b. Converted some AUD to MYR
6. EUR to USD - EUR Stronger. 1.1898 from 1.1615 from 1.1396;
viewtopic.php?f=32&t=5523&start=100
7. USD to HKD - HKD Stronger. 7.7501 from 7.7511 from 7.7536;
a. USD Peg band: 7.75 to 7.85
b. When will they be removing the peg to the USD?
viewtopic.php?f=32&t=3529&start=40
8. USD to MYR:- MYR Stronger. 4.2400 from 4.2641 from 4.2700;
a. 52 Week Range is 3.27 to 4.54
b. Lowest: 4.885 (1998)
viewtopic.php?f=32&t=397&start=9
9. USD to SGD:- SGD Stronger; 1.3696 from 1.3853 from 1.3913;
a. High 1.70 (2004); Low 1.20 (2011)
b. Uncomfortable holding the currency of a small country where a catastrophe can wipe them out; But Singapore has been managing it's finances well.
viewtopic.php?f=32&t=136&start=100
10. USD to CNY:- CNY Stronger; 6.9892 from 7.0157 from 6.9975;
viewtopic.php?f=32&t=7720&start=90
11. GBP to USD:- GBP Stronger; 1.3136 from 1.2766 from 1.2550;
a. Brexit
viewtopic.php?f=32&t=333&start=80
12. GBP to MYR:- GBP Stronger; 5.5702 from 5.4428 from 5.3568;
13. Dollar Index - USD Weaker; 92.68 from 94.57 from 96.24;
viewtopic.php?f=32&t=7616&start=60
Properties:-
1. China Properties:-
viewtopic.php?f=10&t=8150&start=140
2. HK Properties:-
a. How much will it drop and for how long?
viewtopic.php?f=10&t=7785&start=150
3. Singapore Properties:-
a. How long will it drop and for how long?
b. Will they be removing the property curbs?
viewtopic.php?f=10&t=7750&start=210
4. Malaysian Properties:-
viewtopic.php?f=10&t=4220&start=200
Others
Market Sentiment - Complacent?
viewtopic.php?f=16&t=9099&start=90
Headwinds:-
viewtopic.php?f=16&t=8930&p=231225#p231225
Tailwinds:-
viewtopic.php?f=16&t=8940&p=231226#p231226
Warning Signs:-
viewtopic.php?f=16&t=9909&p=231227#p231227
Risk Management:-
viewtopic.php?f=16&t=7547&p=231228#p231228
Yield on 10 Year US Treasuries - Lower; 0.53% from 0.57% last week from 0.60% two weeks ago
Yield on 2 Year Treasuries - Lower; 0.12% from 0.15% from 0.15%;
Interest Rates:-
viewtopic.php?f=16&t=7319&p=221670#p221670
JNK (SPDR Barclays High Yield Bond ETF) - Higher: 105.95 from 104.88 from 103.22;
HYG (iShares iBoxx $ High Yid Corp Bond ETF) - Higher; 85.23 from 84.52 from 83.29;
Baltic Dry Index - Lower; 1348 from 1388 from 1699; Low 290; High 2330 (2013)
Covid19 Notes:-
viewtopic.php?f=25&t=5657&start=150
US Slowdown - How Deep & How Long?
viewtopic.php?f=11&t=9039&start=50
Risks Out There:-
posting.php?mode=reply&f=16&t=8930
The above is to from help me crystallize my thinking. It's not a recommendation to Buy or Sell. Use the above comments at your own risk and please do feel free to provide me with your kind thoughts and comments
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